Safer than investing in NVIDIA: IBM rides the AI wave quietly reviving, hitting a new all-time high in intraday stock price after 11 years
IBM's transformation in the field of AI is showing results, with its stock hitting a historical high of $207.90 on September 11th, marking its revival in the past 11 years. Despite the immaturity of its AI business, investment advisors believe that IBM is a solid stock suitable for long-term investment, especially for investors seeking dividend income. Compared to tech stocks with higher volatility like NVIDIA, IBM's stability has attracted market attention, and it is expected to benefit from the AI boom
The "Blue Giant" IBM is quietly reviving, unlike the AI "darling" NVIDIA with large fluctuations in stock prices, IBM is on a steady upward path.
On Wednesday, September 11th, IBM rose to $207.90 at the beginning of the trading day, hitting a new intraday high since March 14, 2013, with a daily increase of about 1.3%. It quickly turned downward, dropping by about 0.7% when hitting a new daily low in the morning, then rebounded towards the end of the morning session, rising by over 1% at midday, potentially setting a new closing high for the first time since March 2013, after an 11-year hiatus.
Before hitting a new intraday high after 11 years on Wednesday, IBM has already surged by over 20% this year. As of the close on Tuesday, the stock price has risen by 25.5% since the beginning of the year. Although the increase this year is far less than NVIDIA's over 118% surge, IBM has surpassed tech giants such as Apple, Microsoft, Amazon, and Alphabet. Apple and Amazon have risen by less than 20% this year, Microsoft by over 10%, and Alphabet by less than 10%.
Commentators believe that IBM, which has not been favored by stock market investors for many years, is now excelling as the company shifts its focus from hardware to software. The acquisitions of Red Hat in 2019 and Apptio last year are manifestations of this transformation, positioning IBM to benefit from the AI boom. In other words, in the eyes of investors, IBM is becoming a stable tech stock betting on the AI trend.
Tim Pagliara, Chairman and Chief Investment Officer of investment advisory firm Capwealth Advisors, commented that IBM is a stock that "slowly and steadily wins the game." Although IBM is still somewhat overlooked in the tech sector, recent price movements prove that people are beginning to realize its long-term success.
IBM's second-quarter financial report released in late July showed that the sharp increase in orders in the company's AI business is driving revenue growth. Total revenue for the quarter increased by 2% year-on-year to $15.8 billion, slightly higher than analysts' expectations of $15.6 billion, with software revenue exceeding expectations by growing 7% to $6.7 billion. IBM stated that since mid-2023, the value of AI consulting and software orders has exceeded $2 billion, doubling from the $1 billion business volume disclosed in IBM's first-quarter financial report in April.
When announcing the second-quarter results, IBM CEO Arvind Krishna stated that about three-quarters of the AI orders come from consulting, with the rest from software. Over time, the share of software revenue may increase.
Media reports indicate that IBM's cloud business, including data that may help train Large Language Models (LLMs), are positioning IBM as a winner in the field of AI. This also means that IBM is seen as having lower volatility compared to more popular AI concept stock companies like NVIDIA. Investor preferences in the US stock market are shifting from overvalued tech stocks to cheaper individual stocks. In this environment, IBM is in a favorable position with a price-to-earnings ratio of less than 20 times, lower than the approximately 24 times of the Nasdaq 100 Index.
Currently, investors and analysts expect that IBM's growth rate cannot match that of companies like NVIDIA. While Wall Street's view on IBM has been increasingly positive this year, of the 23 IBM analysts tracked by Bloomberg, less than half recommend buying.
Logan Purk, an analyst at Edward Jones who rates IBM as a hold, commented, "The next question is, does IBM have additional momentum? This may not be easy to find, and changing the growth pattern is not easy for IBM. The AI part of the business is currently small and uncertain. In the long run, it may become a bigger driver, but it is still too early."
Pagliara from Capwealth stated that IBM's stable predictability is very suitable for long-term investors with a 15 to 20-year investment horizon or those seeking dividend income. Brian Mulberry, a portfolio manager at Zacks Investment Management Inc., also agrees. He said:
"If you want to maintain a balanced exposure in the tech sector, shift to higher quality, more stable balance sheet assets, then I would absolutely sell NVIDIA today and buy IBM."